6th GNLU Moot on Securities and Investment Law, 2020

MOOT PROBLEM

IN THE SUPREME COURT OF INDIA

(Civil Appellate Jurisdiction)

Appeal No. 1
The Securities and Exchange Board of India
Southern Rocks Limited … Appellants
v.
Pacific Crest (India) Securities Private Limited … Respondents

Appeal No. 2
Southern Rocks Limited … Appellants
v.
The Securities and Exchange Board of India … Respondents

Appeal No. 3
Investor Shareholders … Appellants
v.
Southern Rocks Limited
Aham Nagaraj
Brahmasmi Patelia
Opprime Tiere … Respondents

1. Aham Nagaraj (“Aham”) is a pioneer in the hospitality industry, and specifically in the luxury
resorts segment. While he formally studied medicine in 1990s, Aham was highly enamoured by his
close friend Brahmasmi Patelia’s (“Brahmasmi”) family business of providing lodges/inns to small
businessmen and traders. On lighter days at work, Aham would assist Brahmasmi’s family in
managing supplies and maintaining books of accounts for their inns. Through this experience of few
years with Brahmasmi’s family, Aham gained considerable insight into the hospitality sector and

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convinced Brahmasmi to start a separate venture independent from her family business. Aham was
a keen observer of the Indian economy and society and noticed two major future trends during the
mid-2000s: (a) That all national political parties of India who were expected to run governments in
the next few decades, while being ardent followers of crony capitalism, had adopted and would
continue the strategy of giving lip-service to international corporate governance norms and building
internationally acceptable regulators to attract maximum foreign investment; and (b) that the Indian
middle-class and upper-class society had finally separated morality from the reality of their quality of
life and was ready to embrace the culture of staying in resorts and hotels built over displaced slums
and forest land.

2. Following the above, Aham and Brahmasmi incorporated a company in 2006 with its registered
office in Junagad, Gujarat under the provisions of Companies Act, 1956 and named it ‘Southern
Rocks Private Limited’ (“Southern Rocks”). The primary object of Southern Rocks was to carry
out business in the hospitality sector. At the time of Southern Rocks’ incorporation, Aham and
Brahmasmi were its first shareholders and it had a paid-up share capital of ₹ 200 million, with Aham
holding two-thirds of its total shareholding. Aham was also appointed as the managing director of
Southern Rocks.

3. In 2008, Southern Rocks started taking hotels and guest houses with low occupancy rates on leases
in Gujarat. It would refurbish and redesign these hotels into semi-luxury hotels and then offer rooms
at competitive prices. Southern Rocks exercised complete control over the day to day operations of
these properties by staffing 8-10 employees in each property. Till 2011, Aham and Brahmasmi ran
this model very successfully, and as part of natural progression in this sector, they decided to expand
by both constructing their own properties and acquiring existing properties which were under
financial stress. The type of properties they wanted to construct/acquire were luxury resorts and
business hotels.

4. To achieve the abovementioned first wave of expansion, Southern Rocks approached a number
of commercial banks and financial institutions for capital infusion. However, only Sansar Chand
Finance Limited (“Sansar Chand”), a non-banking financial company with its primary focus on
financing developers in the hospitality sector, showed interest in Southern Rocks. Sansar Chand’s
clientele is concentrated around a very limited number of customers. After extensive discussion and
rounds of meetings with Aham in Mumbai, Sansar Chand agreed to lend a term loan of ₹ 2,000
million to Southern Rocks. Southern Rocks and Sansar Chand entered into a facility agreement
setting out the detailed terms and conditions of the term loan. The principal terms and conditions of
the facility agreement are extracted in Annexure A. As of March 31, 2019, Southern Rocks formed
65% of the total loan portfolio of Sansar Chand. Additionally, Sansar Chand was Southern Rocks’
only lender and had funded around 60% of Southern Rocks’ total expenditure on its business since
2011.

5. By utilising the money loaned by Sansar Chand, Southern Rocks constructed two luxury resorts in
Uttarakhand and Kerala in the financial year 2012. Over the next one and a half years, the revenue
per room generated by these two luxury resorts was approximately twelve percent higher than

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industry standard. Buoyed by this success, Aham and Brahmasmi started planning their second wave
of expansion in constructing and acquiring luxury resorts and business hotels, in order to create a
huge portfolio of properties in all prominent locations across India.

6. To achieve their second wave of expansion, Aham and Brahmasmi discussed different modes of
capital infusion with investment bankers and finally decided to open doors to private equity funds
and institutional investors. Aham and Brahmasmi started reaching out to domestic and foreign
investors at the end of 2013. In their presentations on Southern Rocks’ expansion plans and future
business strategies, one of the unique pitches to the prospective investors was their commitment to
convert Southern Rocks into a completely professionally managed company, run by a professional
team, in the interest of all its shareholders. By the third quarter of financial year 2014, Aham and
Brahmasmi secured investments from eight domestic and foreign investors, independent of each
other, namely, Wittgenstein Investors, Alain Investors, Kumaruppa Pvt. Ltd., Kabir Pvt. Ltd., Pash
Right Ltd., Hegel Light Investments, Langdell Investments and Nagarjuna Ltd. (“Investor
Shareholders”). All Investor Shareholders carried out their respective due-diligence processes on
Southern Rocks and executed a common shareholders’ agreement (“SHA”) and individual share
subscription agreements in March, 2014. Pursuant to the issuance of shares to the Investor
Shareholders in April 2014, the shareholding pattern of Southern Rocks stood as follows:

Sr. No. Name of the shareholder Percentage of shareholding in Southern

Rocks
1. Aham 9.28%
2. Brahmasmi 8.73%
3. Wittgenstein Investors 9.13%
4. Alain Investors 9.13%
5. Kumaruppa Pvt. Ltd. 9.63%
6. Kabir Pvt. Ltd. 9.63%
7. Pash Right Ltd. 9.12%
8. Hegel Light Investments 9.11%
9. Langdell Investments 9.12%
10. Nagarjuna Ltd. 9.12%
11. Other shareholders 8.00%

As a result of the abovementioned investment by Investor Shareholders and the resultant dispersed
shareholding, Southern Rocks converted into a professionally managed company.

7. The SHA was executed between the Investor Shareholders, Aham, Brahmasmi and Southern
Rocks after several rounds of negotiations. All the inter-se transfer rights and protective rights in the
SHA were incorporated into the article of association of Southern Rocks. Summary/Excerpts of
certain rights are as following:

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a. Promoters: ‘The essential and indispensable nature of Southern Rocks is that of a

professionally managed company and this nature of a professionally managed company will
guide all its business activities and organiastional actions.’
b. Right of first refusal: Under the SHA, all Investor Shareholders received a right of first refusal
on the shares held by Aham and Brahmasmi. The right of first refusal clause read as follows
‘in case either Aham or Brahmasmi or both decide to transfer all or any part of their shares
held by them (such number of shares as held by them at that relevant time) to any person,
Aham or Brahmasmi or both, as the case may be, hereby unconditionally and irrevocably
grant to each Investor Shareholder, a prior right to purchase such number of shares in
proportion of each Investor Shareholder’s shareholding in Southern Rocks.’.
c. Composition of the board of directors: Under the SHA, the board must consist of ten
directors, in the following manner: (i) one managing director, preferably Aham, subject to
agreements entered into by Southern Rocks; (ii) four non-executive nominee directors
representing the following four groups of Investor Shareholders: (a) Wittgenstein Investors
and Kumaruppa Pvt. Ltd.; (b) Kabir Pvt. Limited and Hegel Light Investments; (c) Langdell
Investments and Pash Investments; and (d) Pash Right Ltd. and Alain Investors.; (iii) one
non-executive director who would also be the chairman of the board of directors; and (iv)
four independent directors.
d. Entrenchment: Under the SHA, the percentage of votes of members required to pass any
item for which a special resolution is required under applicable law, was increased and
entrenched from the statutory requirement of 75% of the votes casted to 90% of the votes
casted.
e. Initial Public Offering of shares: Under the SHA, Southern Rocks is required to complete an
initial public offering of its shares on a recognised stock exchange (“IPO”) by the end of
Financial Year 2020, at a valuation agreed upon by all the Investor Shareholders. In the event
Southern Rocks fails to complete the IPO within the time period stipulated above, then
Southern Rocks is obligated to compensate all Investor Shareholders in accordance with the
compensation clause in the SHA.
8. After securing capital infusion by Investor Shareholders, Southern Rocks went on an acquisition
and construction spree for the next four years. By the end of financial year 2019, Southern Rocks
had a portfolio of 10 medium and small luxury resorts and four business hotels in India. Out of
these, four luxury resorts are located in Kerala, and contributed 55% to the total revenue contribution
of the luxury resort portfolio. This acquisition and construction spree was also fuelled by further
loans provided by Sansar Chand in two tranches in 2015 and 2018, respectively. The facility
agreement dated June 6, 2011 was suitably amended. At various occasions during the tenure of the
facility agreement, Southern Rocks had breached financial and operational covenants under the
facility agreement, including the revenue per available room covenant. While Sansar Chand waived
off such defaults, they secured certain extra rights through amendments to the facility agreement in
the years 2015, 2016 and 2018. One such instance of exercise of these new rights was seen in 2018,
when for the appointment of a certain individual as its chief financial officer, Southern Rocks
requested approval of Sansar Chand. After a week of consideration, Sansar Chand orally

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communicated to Southern Rocks that while they have not reached upon a final decision on the
approval request, they would advise Southern Rocks to reconsider the appointment of the concerned
person as its chief financial officer. Following this, before the Sansar Chand could arrive at a final
decision, Southern Rocks proposed another individual as its chief financial officer and the same was
approved by Sansar Chand.

9. In April 2019, a year before the contractual cut-off date for the initial public offering, Southern
Rocks initiated preparations for its initial public offering of its shares (“IPO”). As is customary in
IPO transactions, Southern Rocks contacted prospective merchant bankers, held meetings with them
and shortlisted Kamra Securities Private Limited as its lead merchant banker, along with Pacific Crest
(India) Securities Private Limited (“Pacific Crest”) as the other merchant banker (together as
“Merchant Bankers”). Pacific Crest and Kamra Securities Private Limited entered into an ‘offer
agreement’ (“Offer Agreement”) with Southern Rocks, to provide their services as merchant
bankers in the IPO. The Offer Agreement laid out the terms of the IPO, representations by Southern
Rocks on due-diligence items and the duties of Southern Rocks and the Merchant Bankers. The
relevant terms and conditions of the Offer Agreement are extracted in Annexure D.

10. Pacific Crest is registered with the Securities and Exchange Board of India (“SEBI”) as a
merchant banker and is the Indian arm of Pacific Crest Group, Inc. (“PC Group”), a globally
recognised and well-regarded firm of investment bankers. Pacific Crest is one of PC Group’s most
important arms, financially and reputation-wise. Pacific Crest’s importance is underlined by the fact
that Pacific Crest is the only arm which has been licensed to use PC Group’s brand name. Pacific
Crest is engaged in investment banking, investment management of securities, and other financial
services and has a significant presence in the investment banking space with the entity involved in
various marquee fund raising deals over the years. Pacific Crest’s clientele comprises foreign portfolio
investors through its global associations.

11. During Pacific Crest’s discussion with Southern Rocks, Pacific Crest also got in touch with
another company in the hospitality industry, named Fig Leaf Hotels Private Limited (“Fig Leaf”)
for a possible initial public offering of Fig Leaf’s shares. The possible issue size of the initial public
offering of Fig Leaf was touted to be ₹ 1,500 million, which would then be used to repay the lenders
of Fig Leaf. Fig Leaf is one of the largest hotel companies by number of hotels and has one of the
most geographically diverse portfolio of 30 luxury as well as business hotels in India. However,
Pacific Crest saw higher possibility of a successful initial public offering with Southern Rock and
hence decided to be their lead merchant banker.

12. In May 2019, the merchant bankers and their lawyers initiated due-diligence processes on
Southern Rocks to prepare the draft red herring prospectus (“DRHP”) for the IPO. The due-
diligence process involved extensive discussions with Southern Rocks about their business model
and future strategies, review of their statutory filings, capital structure, agreements as well as loan
documentation. As part of the statutory requirement for an IPO, Southern Rocks converted from a
private limited company to a public limited company in November, 2019. The Investor Shareholders
and their lawyers also reviewed those parts of the DRHP that were relevant to them as part of the

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IPO process. The offer in the IPO consisted of a fresh issue of shares to raise up to ₹ 3,250 million
and an offer of sale by all Investor Shareholders to the extent of 10% of their pre-IPO shareholding.
The finalised DRHP, which consisted of 626 pages, was prepared over the next six months and was
electronically filed with the Securities and Exchange Board of India on January 3, 2020.

13. On January 5, 2020, all the Investor Shareholders received anonymous letters, bringing their
attention to a specific disclosure in the DRHP concerning a certain shareholders’ agreement entered
into between Aham and Opprime Tiere, a small shareholder of Southern Rocks (such individual to
be referred to as “Opprime” and this shareholders’ agreement to be referred to as “A-O SHA”),
under which Aham had granted Opprime a right of first refusal over his shares and Opprime had
granted Aham a right of first refusal over his shares (such right to be referred to as “RoFR”). The
Investor Shareholders immediately reached out to Aham and Southern Rocks on this issue. Over the
next ten days, it came to light that during the before the first wave of expansion of Southern Rocks,
Aham and Brahmasmi used to regularly reach out to their friends and relatives to cover small-sized
expenditures. In return for this financial support, Aham and Brahmasmi would get Southern Rocks
to issue a small number of shares to such friends and relatives (such friends and relative to be referred
to as “Small Shareholders”), and just to formalise the arrangement, Aham would enter into a
shareholder agreements with boilerplate clauses, with these Small Shareholders. Such shareholder
agreements were never negotiated or discussed between Aham and the Small Shareholders and nor
were the terms ever incorporated into the articles of association of Southern Rocks. Opprime was
one such friend of Aham who had subscribed to 0.73% (shareholding percentage on a fully diluted
basis, as of January 4, 2020) of Southern Rocks’ shares for ₹ 20 million in 2010 and had entered into
one of the abovementioned shareholders’ agreement with Aham. A copy of the A-O SHA was
provided to the Investor Shareholders on January 13, 2020 after their prolonged insistence. The
principal terms and conditions of the A-O SHA agreement are extracted in Annexure C. Following
this, two meetings were held between Aham and the Investor Shareholders, which turned into heated
exchanges. However, no definite resolution was reached upon.

14. Meanwhile in mid-January, SEBI officials requested the merchant bankers to meet them at their
offices. At this meeting held on January 17, 2020, SEBI raised concerns about certain disclosures in
the DRHP. The merchant bankers responded to these concerns promptly in the meeting itself.
Subsequent to the meeting, the Merchant Bankers in their unofficial capacity reached out to investors
in different jurisdictions with whom they have had past associations in order to gauge their response
towards the IPO. The Merchant Bankers informed the investors about Southern Rocks’
achievements, financial performance and possible business strategies. However, the investors gave a
tepid response and softly indicated that they are tying-up most of their yearly funds allocated for the
hospitality sector for the possible initial public offer of Fig Leaf.

15. Meanwhile, the rapid spread of the coronavirus disease (COVID-19) in January, 2020 raised fears
of a global pandemic and a sharp increase in victims and deaths brought travel
restrictions, quarantines, and curfews. Most countries issued warnings against travel to Asian
countries that reported confirmed cases of the outbreak including India. India also banned the entry

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of any individual (other than Indians) who were in China during the outbreak period. The outbreak
in India was concentrated in the state of Kerala. Certain business magazines reported that the tourism
department has noticed a significant dip in the tourism industry across Kerala in the first three weeks
of January, 2020. LibGen LLP, a South Asian consulting firm known for its market research in the
hospitality industry and its accuracy in predictions of future trends, published a report on the impact
of coronavirus on the hotel industry in India in January 26, 2020. A relevant excerpt of the same is
extracted as Annexure E. Soon after the break-out of news of coronavirus, there was a sudden steep
downturn in the stocks of many sectors including automobile, hospitability and travel,
manufacturing, in China and certain other jurisdictions. Certain well-known analysts all around the
world fears that if the situation persists, this event may bring down the economies of certain countries
to a halt/ cause global or regional recession.

16. Following the outbreak, the Merchant Bankers met Southern Rocks’ officials met on January 28,
2020 and discussed the impact of coronavirus on their business, specifically in relation to their luxury
resorts. The officials clearly communicated the following two impacts to the Merchant Bankers: (a)
that their luxury resorts in Kerala have been very hard hit by coronavirus; and (b) approximately 50%
of their revenue in their business hotels segment was dependent on the Chinese corporate clientele
whom they have had recent tie-ups with (they had entered into tie-ups with their Chinese corporate
clientele in March 2018), which has now been completely decimated due to the travel bans
implemented by the Indian government. Southern Rocks also conveyed in passing that they have
received a letter from Sansar Chand on the likelihood of breach of certain financial and operational
covenants in the future owing to impact of coronavirus on the Company’s financials. However, they
assured the Merchant Bankers that the above is not going to affect Southern Rocks’ financial in the
long term and the Merchant Bankers communicated their satisfaction about the same. Following is
the expenditure and revenue graph for Southern Rocks from April 1, 2016 till December 31, 2019.

7000

6000
6435.83
5000
5253.74
4000
3891.66 3814.49
3000 3506
3232.62
2503
2000 2628.15

1000

0
2016-17 2017-18 2018-19 As of December 31, 2019

Expenditure Revenue

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17. Thereafter, at noon on January 31, Pacific Crest sent a termination notice to Southern Rocks to
terminate the Offer Agreement stating the following, ‘Pacific Crest is of the view that Coronavirus
has severally impacted the operations and financial condition of Southern Rocks and the same
amounts to a material adverse change under the Offer Agreement. Therefore, under Clause 21.2 read
with Clause 2(n) of the Offer Agreement, Pacific Crest hereby terminates its services for the initial
public offering of Southern Rocks with immediate effect.’. Along with this termination notice,
Southern Rocks was also apprised that in the last week of January, Fig Leaf released a press note
announcing that it is in advanced stages of selecting investment bankers for its initial public offer in
India. Also, on February 1, 2020, there were certain unsubstantiated reports in business newspapers
that Fig Leaf has reached out to Pacific Crest to act as its lead merchant banker for its initial public
offer and Pacific Crest agreed to the same in-principle. Reacting to these reports, the Chairman of
the Association of Eminent Investment Bankers of India (which is a registered self regulatory
organisation with SEBI) strongly condemned Pacific Crest’s move of backing out of the IPO to
service Fig Leaf’s initial public offer.

18. Following the surprising events in the first half of January 31, 2020, SEBI sent a rejection order
rejecting the DRHP under the SEBI (Framework For Rejection Of Draft Offer Documents) Order,
2012 at 4 p.m. on the same day. SEBI provided the following two reasons for rejecting the DRHP:
1) That it is wrongly stated in the DRHP that Southern Rocks is a professionally managed company,
as Southern Rocks failed to identify Sansar Chand as its promoter; and 2) That it does not agree with
Southern Rocks’ analysis in Risk Factor No. 7 (refer to Annexure B) that Aham is unlikely to be
disqualified to act as the managing director of Southern Rocks and that imminent likelihood of Aham
being disqualified to act as the managing director of Southern Rocks will adversely affect the interests
of prospective investors.

19. Shocked by the events that took place on January 31, Southern Rocks undertook the following
two steps on February 4, 2020:

a. In relation to the termination notice by Pacific Crest: It instituted a complaint with SEBI
against Pacific Crest, alleging that Pacific Crest had invoked the material adverse change
clause with a mala-fide intention and so as to free itself to service a competitor’s initial public
offer, thereby violating the duties and expected conduct that Pacific Crest must have followed
under applicable law.
b. In relation to SEBI’s rejection order: It instituted an appeal (“SAT Appeal”) before the
Securities Appellate Tribunal, Mumbai (“SAT”), arguing that the DRHP cannot be rejected
as i) Sansar Chand cannot be characterised as the promoter of Southern Rocks; and ii)
reiterated its legal stand that Aham will not be disqualified from the acting as a director on
the board of Southern Rocks.
20. In the intervening period, in relation to the second reason for the rejection of the DRHP, it came
to the Investor Shareholders’ knowledge that the positive legal opinion (issued by a senior advocate
of the Delhi High Court) provided to them by Southern Rocks on the issue of Aham’s qualification
to act as a director on the board of Southern Rocks (provided to the Investor Shareholders in

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November, 2019 to provide them comfort in relation to the possible disqualification), was not the
only legal opinion that the Company obtained in this regard. Before they received the positive legal
opinion, Southern Rocks had approached a senior advocate of the Bombay High Court, who had
orally communicated an unfavourable legal opinion (opining that there is a high likelihood of Aham
getting disqualified), following which Southern Rocks went to the senior advocate of the Delhi High
Court, who also happened to be a regular legal representative of Kamra Securities Private Limited in
the courts of Delhi.

21. Following this, on February 6, 2020, all the Investor Shareholders instituted a class action under
the Companies Act, 2013 before the National Company Law Tribunal (“NCLT”), praying for a
direction that in light of the right of first refusal provided to the Investor Shareholders and in the
interest of the essential nature of Southern Rocks, Aham should be forced to nullify the RoFR
provided to Opprime under the A-O SHA, thereby upholding the articles of association of Southern
Rocks. Additionally, the Investor Shareholders also claimed damages to the tune of ₹ 2,000 million
from Aham and Brahmasmi for their fraudulent conduct. The Investor Shareholders also impleaded
Opprime in the proceedings.

22. After a month of silence, SEBI on March 10, 2020 passed an order (“SEBI MB Order”) in
relation to the complaint instituted by Southern Rocks against Pacific Crest. In its order, SEBI found
that Pacific Crest had violated relevant securities regulations by failing act as a securities market
intermediary and fulfilling their statutory duties as a merchant banker. SEBI noted that Pacific Crest
triggered the material adverse change clause wrongfully and surreptitiously to end its association with
the IPO. The SEBI MB Order barred Pacific Crest from carrying out activities in the capacity of a
merchant banker for nine months. Pacific Crest instituted an appeal against the SEBI MB Order
before SAT, which overturned the SEBI MB Order. SEBI and Southern Rocks instituted an appeal
against SAT’s order (“Appeal No. 1”) before the Supreme Court of India.

23. On April 1, 2020, SAT pronounced its judgment on the SAT Appeal, where it upheld SEBI’s
rejection order. Facing a grave crisis, Southern Rocks instituted an appeal against SAT’s order before
the Supreme Court of India (“Appeal No. 2”). Meanwhile, NCLT pronounced its judgment in
relation to the class action on April 2, 2020 where they rejected both the prayers on the grounds that
the Investor Shareholders (a) failed to prove the ingredients of a class action; and (b) failed to prove
that the RoFR is required to be nullified. The NCLT accepted Aham’s argument that the RoFR has
no legal effect and is in fact dead letter. Post NCLT’s judgment, the Investor Shareholders were still
of the view that the RoFR has the force of law and that it is essential to get it nullified. They
approached the National Company Law Appellate Tribunal (“NCLAT”) against NCLT’s order,
which on June 30, 2020, upheld NCLT’s order. Facing this double disappointment, the Investor
Shareholders preferred an appeal against NCLAT’s order before the Supreme Court of India
(“Appeal No. 3”).

24. In light of Appeal No. 1, Appeal No. 2 and Appeal No. 3 arising from common facts and
interdependent interests, the Supreme Court of India decided to club all the three appeals and hear

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them together on the date of the oral rounds. None of the parties has raised any issue regarding the
jurisdiction of the court, which they all accept.

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Annexure – A

Excerpts of the facility agreement dated June 6, 2011 between Southern Rocks (the
“Borrower”) and Sansar Chand (the “Lender”), as amended from time to time.

Clause 17.1 – Undertakings - The Borrower shall not undertake any of the following actions without
the prior written consent of the Lender:

17.1.1 Changing the authorised share capital, issued, subscribed or paid-up share capital (including
any equity securities) of the Borrower; or
17.1.2 Raising any unsecured debt (other than in relation to trade creditors); or
17.1.3 Materially changing the compensation or roles and responsibilities of the chief financial
officer and chief executive officer of the Borrower1;
17.1.4 Acquiring of any new hotel property exceeding an amount of ₹ 800 million; or
17.1.5 Undertaking any type of guarantee obligations on behalf of any person or any third party;
or
17.1.6 Acquiring any company or any shares or any partnership interest or securities, business,
assets or undertaking or make any investment other than in the ordinary course of business;
or
17.1.7 Any re-organisation, merger, arrangement, or recapitalisation of the share capital, or
cancellation or otherwise re-organising; or
17.1.8 Incurring indebtedness (including by way of guarantee) exceeding an amount of ₹ 500
million for borrowed money, otherwise than in accordance with the ordinary course of
business; or
17.1.9 Creation of subsidiaries whether by formation, acquisition or otherwise; or
17.1.10 The commencement, defence or settlement by the Borrower of any litigation, arbitration or
other proceedings which may give rise to a claim or liability in excess of an amount of ₹ 20
million; or
17.1.11 Declaring or paying any dividend;
17.1.12 Make any change to the general nature of its business as being carried out as of June 6,
2011; or
17.1.13 Prepay any indebtedness incurred from any entity and/ or person other than the Lender;
or
17.1.14 Enter into any lease deed with an owner any hotel property wherein the annual rent for
such hotel property is more than 20% of the net revenue from that hotel property; or2
17.1.15 Enter into or permit to subsist any other preferential arrangement having a similar effect;
or
17.1.16 Convey, sell, lease, transfer or assign or otherwise dispose of (or agree to any of the
foregoing) all or any part of its hotel assets or right, title or interest to or in any hotel assets;
or

1 Inserted through third amendment to the facility agreement, with effect from December 7, 2018.
2 Inserted through first amendment to the facility agreement, with effect from May 3, 2015.

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17.1.17 Enter into any partnership, profit sharing, royalty or other such arrangement by which the
income or the profit relating to the hotel assets might be shared with any third parties; or
17.1.18 Make any amendments to the charter documents of the Borrower;
Clause 17.2 - In the event of any vacancy in the position of independent director(s) or chief executive
officer of the Borrower, the Borrower shall request the Lender for a list of recommendations and
thereafter choose independent director(s) or the chief executive officer from such list. The
appointment of the chief financial officer of the Borrower will always be subject to the written
approval of the Lender.3

Clause 17.3 - In the event of any vacancy in the position of managing director of the Borrower, the
Borrower shall request the Lender for a list of recommendations and thereafter choose a managing
director from such list. However, in case the Borrower appoints a managing director from outside
the list of recommendations, then such appointment will be subject to the written approval of the
Lender.4

Clause 17.4 - The Borrower shall, as and when required by a written notice from the Lender, shall
consider changes in the positions of the managing director, chief financial officer, suitable technical,
financial and executive staff holding key posts.5

Clause 17.5 - The Borrower shall constitute such committees of the board of directors with such
composition and functions as may be required by the Lender for close monitoring of different
aspects of its operations and working.6

Clause 17.6 – The Lender shall have the right to appoint, whenever they consider necessary, any
person, firm, company or association of persons engaged in technical, management or any other
consultancy business to inspect and examine the working of the Borrower and its hotels and to report
the same to the Lender.7

Clause 17.7 - The Borrower shall ensure that the revenue per available room (“RevPar”) of the
Hotels shall be a minimum of the rates provided hereunder at the end of each of the time periods as
mentioned below and the Lender shall be entitled to monitor/ review the RevPar below on a half-
yearly basis:8

Period January 1, January 1, 2020 – January 1, January 1, January 1,

2020 – December 31, 2022 – 2023 – 2024 –
December 2021 December December December
31, 2020 31, 2022 31, 2023 31, 2024s

3 Inserted through third amendment to the facility agreement, with effect from December 7, 2018.
4 Inserted through third amendment to the facility agreement, with effect from December 7, 2018.
5 Inserted through third amendment to the facility agreement, with effect from December 7, 2018.
6 Inserted through third amendment to the facility agreement, with effect from December 7, 2018.
7 Inserted through first amendment to the facility agreement, with effect from May 3, 2015.
8 Inserted through first amendment to the facility agreement, with effect from May 3, 2015.

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Rate ₹ 2195/- ₹ 2415/- ₹ 2657/- ₹ 3075/- ₹ 3897/-

Clause 18.1 – Operating Plan - Before 30 days prior to the end of each calendar year during the term
of this agreement, the Borrower undertakes to provide a proposed operating plan (including
operating expenses and capital expenditure) for the next calendar year.9

Clause 18.2 - Such operating plan shall include (i) monthly profit and loss forecasts with comparison
to the prior calender year; (ii) monthly cash flow forecasts; (iii) sales and marketing plan; (iv) budget
for ordinary repairs and maintenance budget; and (v) budget for all repairs, alterations, improvement,
replacements, renewals, and additions to the structure or exterior faced of the hotel premises
(“Capital Expenditure”).10

Clause 18.3 – Upon receipt of the aforesaid operating plan, the Lender will have the right to provide
any reasonable suggestions thereto within a period of 10 days. Further, if such reasonable suggestions
are not incorporated, the Borrower will provide reasons for the same. However, if there is any
suggestion with respect to the Capital Expenditure, such suggestion will necessarily be required to
be incorporated in the operating plan before giving effect to it.11

Clause 20.1 - Consequences of default - In the case of any event, act, omission or condition which
is or which amounts to non-compliance of any of the obligations under this agreement, the Lender
may at any time with immediate effect by a notice in writing to the Borrower:

(a) accelerate the repayment of the debt; or

(b) declare all outstanding amounts/ monies/ amounts due, owing or outstanding under this
agreement as being immediately due and payable or otherwise payable on demand; or
(c) convert at its option the whole of the outstanding amount of the loan amount (principal,
interest and other amounts due and payable thereon) whether due or not into fully paid-up
equity shares of the Borrower, in accordance with the applicable laws, by giving a notice in
writing to the Borrower. Such conversion shall never be less than 10% of the paid-up capital
of the Borrower at the time of the conversion.12

9 Inserted through second amendment to the facility agreement, with effect from January 3, 2016.
10 Inserted through second amendment to the facility agreement, with effect from January 3, 2016.
11 Inserted through second amendment to the facility agreement, with effect from January 3, 2016.
12 Inserted through third amendment to the facility agreement, with effect from December 7, 2018.

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6th GNLU Moot on Securities and Investment Law, 2020

Annexure - B

Excerpts of the Risk Factors section from the draft red herring prospectus of Southern Rocks
Limited

Risk Factor No. 7: Aham Nagaraj, our Managing Director is currently disqualified from one of the
companies where he is a director, and he may be required to vacate his directorship from the Board
of Directors of our Company.

Our managing director, Aham Nagaraj, is a non-executive director on a company named Nero
Private Limited (“Nero”). For the financial years 2016 and 2017, Nero had three directors on its
board – a) Mr. Kobe as an executive director; b) Mr. Bryant as a non-executive director; and c) Aham
Nagaraj. In September 2017, due to certain reservations with respect to certain related party
transactions entered into by Nero in financial year 2016, Mr. Bryant declined to sign the financial
statements of Nero for financial year 2016. Mr. Kobe and Aham Nagaraj, after satisfying themselves
about the legality of the related party transactions, tried their best to persuade Mr. Bryant about the
legality of the controversial related party transactions. However, Mr. Bryant did not change his stand
and declined to sign any of the statutory filings, including the financial statements till financial year
2018. Mr. Kobe retired by rotation in the financial 2017. After Mr. Kobe vacated his directorship,
no more board meetings were held and therefore no new director was appointed to Nero’s board.

Due to the failure of filing of statutory filings for Nero as mentioned above, we believe that Aham
Nagaraj might be disqualified from acting as a director on the board of Nero. However, since there
was no non-feasance or mal-feasance on the part of Aham Nagarag while carrying out his duties as
a director of Nero, we believe that Aham Nagaraj is not disqualified from acting as director on the
board of other companies.

However, in case Aham Nagaraj is found to be disqualified by any governmental, regulatory or

judicial body, considering his influence in the growth, goodwill and operations of the Company, his
disqualification will have a material adverse impact on our business, financial results and results of
operation.

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6th GNLU Moot on Securities and Investment Law, 2020

Annexure – C

Excerpts of the Shareholders’ Agreement dated September, 2010 between Aham Nagaraj and
Opprime Tiere.

Clause 2(c) – Definition of a ‘Company’ – For the purposes of this Shareholders’ Agreement,
Southern Rocks Private Limited will be referred to as the ‘Company’.

Clause 2(k) – Definition of a ‘Share’ – For the purposes of Clauses 2, 3.3, 4, 5, 6, 7 and 9, a ‘share’
means, as existing from time to time, the equity shares, preference shares, warrants, options, rights
or any other similar instruments of the Company.

Clause 3.4 - Right of First Refusal on all shares held by Aham Nagaraj – Subject to applicable laws
of the Republic of India, in the event Aham Nagaraj (“Transferor”) decides to transfer (directly or
indirectly) all or part of the shares (“Transfer Shares”) held by him to any person, the Transferor
hereby unconditionally and irrevocably grants to Opprime Tiere (“Right Holder”), a prior right to
purchase such number of Transfer Shares and the remaining number of the shares held by the
Transferor.

Clause 3.5 - Right of First Refusal on all shares held by Opprime Tiere - Subject to applicable laws
of the Republic of India, in the event Opprime Tiere (“Transferor 2”) decides to transfer (directly
or indirectly) all or part of the shares (“Transfer Shares”) held by him to any person, the Transferor
2 hereby unconditionally and irrevocably grants to Aham Nagaraj, a prior right to purchase such
number of Transfer Shares.

Clause 3.7 – Consideration for acquisition of shares by the Right Holder under Clause 3.4 – In case
the Right Holder decides to exercise its right under Clause 3.4, then the consideration to be paid to
the Transferor to buy each share will be the valuation of a single share as reached upon according to
the valuation procedure enumerated in Clause 3.8 of this agreement, plus ten percent of such
valuation. For example, if the valuation of a single share, as calculated under Clause 3.8 is ₹ x, then
the consideration for such a share to be paid by the Right Holder to the Transferor for such a share
will be ₹ x + ₹ 0.1x.

Clause 6 – Termination – This Shareholders’ Agreement will terminate on the earliest occurrence of:
(a) the date on which this Shareholders’ Agreement is terminated mutually by all parties; or (b) one
hundred and twenty two months from the date of completion of the issuance of shares to Opprime
Tiere under this Shareholders’ Agreement; or (c) the date on which Opprime Tiere ceases to hold
any shares in the Company.

Clause 7.9 – Survival – Clauses 2, 3.1 and 5 shall survive the termination of this Shareholders’
Agreement.

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6th GNLU Moot on Securities and Investment Law, 2020

Annexure – D

Excerpts of Offer Agreement dated January 2, 2020 executed amongst Southern Rocks, the
shareholders selling shares in the IPO and Pacific Crest and Kamra Securities Private
Limited (the “Merchant Bankers”)

Clause 2(c) – Definition of a ‘Company’ – For the purposes of this Offer Agreement, Southern
Rocks Private Limited will be referred to as the ‘Company’.

Clause 2 (n) – Definition of a ’Material Adverse Change‘ – It means any change, event, development,
condition, or effect that, individually or when take together in the aggregate, has had and could as
reasonably be expected to have a material adverse effect, as determined by the Merchant Bankers in
their sole discretion, severally and not jointly, on the assets, liabilities, financial conditions, revenue,
business, management, operations, or prospects of the Company, whether or not arising in the
ordinary course of business, or (b) in the ability of the Company to conduct their businesses; or (c)
in the ability of the Company to perform its obligations under, or to consummate the transactions
contemplated by, this Offer Agreement, including the issuance and allotment of the shares
contemplated herein or therein.

Clause 21.1 - Term and Termination - The Merchant Bankers engagement have commenced from
May 19, 2020, and shall, unless terminated earlier pursuant to the terms of this Offer Agreement,
continue until (i) the listing of the shares on the stock exchanges pursuant to the IPO, or (ii) such
other date as may be mutually agreed to between the parties to this agreement. In the event this
agreement is terminated before the listing of the shares on the stock exchanges, the parties to this
agreement agree that the draft red herring prospectus, the red herring prospectus and/or the
prospectus, as the case may be, will be withdrawn from the Securities and Exchange Board of India
as soon as practicable after such termination.

Clause 21.2 - Notwithstanding anything contained in Clause 21.1 above, each Merchant Banker may,
unilaterally terminate this agreement, by a written notice to the Company, in respect of itself, if there
shall have occurred any Material Adverse Change that makes it, at the sole discretion of the
concerned Merchant Banker (which shall be exercised reasonably), impracticable or inadvisable to
proceed with the offer, sale, allotment, delivery or listing of the shares.

Clause 21.3 - In the event, any of the Merchant Bankers terminates this agreement, such Merchant
Banker will not act as a merchant banker for any other company engaged in the similar business as
of the Company, for a period of next three (3) months from the date of the aforesaid written notice.
However, in case any of the Merchant Bankers terminates this agreement pursuant to a Material
Adverse Change, then it shall be free to act as a merchant banker for any other company, including
for companies engaged in similar business.

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6th GNLU Moot on Securities and Investment Law, 2020

Annexure - E

Excerpts of the report on the impact of coronavirus on the hotel industry in India dated
January 26, 2020.

“The outbreak of the novel coronavirus (Covid-19) which is yet to peak, has already caused loss of
human lives and disruption to society. Its impact, both at macroeconomic and individual corporation
level, is expected to be more severe and far reaching. As the coronavirus continues to spread around
the world, businesses are starting to see the effects of the same on the economy. There could be
possible economic losses to the travel, tourism and intensive manufacturing sectors. The hospitality
and travel industry is facing the rapid spread of coronavirus with direct consequences. Hospitability
and others stocks across the world are in downward spiral. India had recently gained currency as a
trendy destination for Chinese tourists who had dumped traditional overseas travel destinations in
favour of it…With respect to effect of global events, historically it has been witnessed that hotels
which cater to business travellers are prone to the macro-economic indicator whereas hotels which
cater to leisure travellers show a greater sensitivity to non-economic factors such as terror attacks,
health related travel warnings, etc. For instance, in FY 2008-09, the hotel industries faced a slow
down on account of the Mumbai terror attacks and the swine flu linked travel advisories.
Consequently, the average revenue per room of ten majors states of India (including Delhi,
Maharashtra, and Kerala) had registered a steep decline in FY 2008-09 and 2009-10….Tourism in
India may be hit hard by travel restrictions and fears of contagion, including a ban on both domestic
and international tour groups, however the full effects are still uncertain and unfolding…”

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